The goal of any monopolistically competitive company is to maximize profits. In terms of total revenue and total cost, profit is defined as the difference between marginal revenue and marginal cost. Thus, the quantity yielding the highest profit is chosen to be produced so as…
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However, there comes a point where marginal cost exceeds the marginal revenue. Therefore, a company keeps on increasing the quantity of output until marginal revenue equals marginal cost at which point change in profit (marginal revenue – marginal cost) equals zero (Mankiw, 2008) and the ratio of MR to MC also equals zero.
From the above table, it can be observed that the MR keeps increasing as the number of widgets produced is increased. However, from a quantity of 7 widgets onwards the MR keeps decreasing. Finally, at a quantity of 8 widgets, the MR equals MC which is the point at which the profit is maximal.
MR keeps increasing with increasing quantity of output (widgets) however there comes a point (15 widgets) where the MC exceeds MR. Thus, when MR exceeds MC the quantity produced should be increased until before MR equals
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